When Opportunity (Costs) Come Knocking

The New York Times gives us an early peek at a soon-to-be-published paper in which researchers report that reminding people about opportunity costs (i.e., other things you could do with money not spent on an option you’re considering) sways consumers toward more frugal options.

For example, 63% of people said they’d be willing to spend $399 for a 32 gigabyte iPod over a $299 iPod with 16 gigabytes of storage. But when the researchers reminded consumers that the lower-end iPod would leave them with an extra $100, preferences flipped — 73% said they’d prefer the lower-cost option.

This reminds me a lot of the hidden zero effect, on which we blogged a while back. In that situation, steep discounting of payoffs that occur at different points in time can be attenuated by reminding people of when they’re not getting money as well as when they are.